BOJ Is Said to Be Leaning Toward a Quarter-Point Hike

Summary

Bloomberg's Skylar Montgomery Koning discusses yen volatility and BOJ policy expectations after reports the BOJ is leaning toward a quarter-point hike. She says a rate-differential model puts dollar-yen near 140, but adding a Japanese term premium because the BOJ fell behind the curve gives fair value near 160. If that premium unwinds, the dollar-yen move could be very large and fast.

• USD/JPY bounced from 160 to 156 and back.
• Markets question whether 160 is a hard line for dollar-yen.
• Rate differentials alone would value dollar-yen around 140.
• A Japanese term premium lifts modeled fair value to roughly 160.
• The BOJ is seen as far behind the curve.
• An unwinding of the term premium could produce a very large move.
• US-side intervention risk remains part of the story.